Frictionless B2B Ecommerce: The Importance of Checkout

The Rise of B2B E-commerce

The year 2020 saw a significant shift in consumer behavior, with COVID-19 firmly establishing e-commerce as a routine part of daily life. Currently, attention is turning towards the burgeoning field of B2B e-commerce, representing a key area for both entrepreneurs and investors.

Businesses were compelled to move their operations online due to the pandemic. This transition, coupled with the development of B2B marketplaces and robust e-commerce infrastructure, is driving a new period of expansion.

Projections indicate that the total value of goods sold (GMV) in the B2B e-commerce sector will reach $3.6 trillion annually by 2024.

The Missing Piece: Streamlined Checkout

Despite the considerable advancements in B2B e-commerce, a crucial element is still lacking: a fully optimized checkout process. This represents a significant opportunity.

An improved checkout experience has the potential to be a primary catalyst, unlocking further growth and wider adoption of B2B e-commerce solutions.

Effectively, a superior checkout system can be the ultimate enabler for the broader B2B e-commerce landscape.

The Complexities of B2B E-commerce

Traditional B2B e-commerce has faced obstacles due to established practices and a historical lack of robust cloud infrastructure. The B2B buying process is notably more intricate than its consumer counterpart, despite the rapid advancements in the market.

These challenges generally center around three key areas:

Payment Systems

The rise of PayPal initially facilitated consumer e-commerce, and Stripe subsequently streamlined card payment integration over the past decade. However, B2B transactions present a different scenario.

Sellers have often resisted the 3% surcharge associated with these platforms, preferring the inefficiencies of traditional methods like physical checks and accounts payable processes.

As recently as 2018, checks accounted for 60% of B2B payment flows, representing a significant impediment to broader e-commerce adoption.

Authorization Protocols

A substantial portion of B2B purchases necessitate contracting and procurement procedures, demanding approvals from multiple stakeholders.

This introduces friction into the buying journey, as sellers frequently lack visibility into a buyer’s authorization status.

Instead of immediate purchasing capabilities, buyers often must submit forms to initiate contact with a sales representative, extending transaction times from seconds to potentially weeks.

Credit and Financing

The majority of B2B transactions rely on credit mechanisms, including working capital loans, factoring, or extended payment terms.

Credit applications are traditionally handled through paper-based forms, or at best, hosted PDFs, requiring extensive review by internal credit departments.

Consider John Deere, which employs over 1,000 individuals with “credit” in their job titles, highlighting the substantial cost and security risks associated with paper-based processes.

Consequently, the inability to execute instant online purchases, a common experience for consumers, persists.

Addressing these challenges requires a comprehensive platform approach, rather than fragmented point solutions, to overcome these interconnected fintech hurdles.

The Emerging Significance of Checkout in B2B Fintech

The concept of “checkout,” while seemingly straightforward, represents a novel and rapidly evolving category within the fintech landscape. Modern checkout solutions integrate digital payments, identity verification, fraud prevention, and credit facilities into a unified system.

This integration fosters a robust network capable of establishing trust and enabling seamless, one-click transactions on a large scale. It’s a potentially highly profitable area, delivering value to both the checkout provider, the seller, and the purchaser.

Businesses are less inclined to absorb the typical 3% fee associated with digital payments in B2B transactions, particularly those involving substantial Average Order Values (AOVs). However, they are willing to invest in solutions that demonstrably improve conversion rates. A 5% transaction fee becomes justifiable when it unlocks access to new global markets, significantly boosts conversion, and streamlines accounts payable, accounts receivable, and credit processes.

Checkout functions as a platform, rather than simply a payment mechanism, and the current moment presents a prime opportunity to establish its dominance within the B2B sector. Existing purchasing behaviors within businesses are shifting, and the necessary fintech infrastructure is now aligning to support this change.

Advancements in Non-Card Digital Payment Systems

Traditionally, the digital alternative to traditional checks involved connecting to the Automated Clearing House (ACH) network, the interbank clearing system. However, ACH transactions typically take two to three days to settle, which is unsuitable for the demands of e-commerce.

Fortunately, the governing bodies of ACH have been actively developing faster payment systems. Real-Time Payments (RTP) have experienced substantial growth, with Same Day ACH increasing by over 133% from the first quarter of 2020 to the first quarter of 2021.

Recent initiatives in March of this year, focused on reducing fraud through enhanced account validation, have further increased the transaction limits for RTP, facilitating low-cost digital payments for businesses. Companies like Orum and Dwolla are simplifying access to these systems through Application Programming Interfaces (APIs).

Similar trends are unfolding globally, with open-banking frameworks and faster payment systems gaining traction in Europe and Asia. This expansion enables B2B checkout platforms to efficiently serve multiple international markets, providing significant momentum for B2B checkout by offering cost-effective payment options worldwide.

The Increasing Adoption of B2B Card Payments

Card payments have been the primary driver of growth in consumer e-commerce over the past decade. However, B2B card usage and transaction volumes have historically been limited, representing less than 10% of total B2B spending in 2018.

Credit cards offer a valuable tool for extending payment terms, but established banks and providers, such as Wex and Fleetcor, have often overlooked the needs of Small and Medium-sized Businesses (SMBs) and rapidly growing companies.

A new wave of startups is actively addressing this gap, delivering improved and expanded market access through superior digital platforms. These companies encompass a broad range, from B2B neobanks like Novo and Mercury to credit-focused products like Ramp and Rho. These innovations are establishing the digital infrastructure necessary for business payments, further fueling the growth of B2B checkout and e-commerce.

The Role of Digital Identity Verification

Resolving the issue of permissions is crucial for unlocking the potential of business e-commerce, and checkout serves as the ideal central point for managing business identity. One-click transactions become possible by consolidating data from both first-party and third-party sources into a unified digital profile.

Currently, buyer and seller data is frequently fragmented and inaccessible within Enterprise Resource Planning (ERP) or procurement systems. This challenge is compounded at the individual buyer level: determining purchasing authority, limits, and required approvals can be complex.

However, advancements in API infrastructure and machine learning are overcoming these obstacles. Platforms like Codat and Railz provide connectivity to accounting and ERP systems, similar to Plaid, unlocking valuable business logic and critical underwriting data. Modern verification APIs, such as Middesk and Alloy, automate business verification and mitigate risk.

Furthermore, platforms like Ocrolus are streamlining credit applications by eliminating paper forms. The combined effect is faster checkout processes, more accurate credit assessments, and the opportunity to build a powerful network connecting business buyers and sellers.

The Rise of B2B Buy Now, Pay Later (BNPL)

Consumers have witnessed the rapid expansion of BNPL services with companies like Affirm and Klarna integrating lending products at the point of sale. Given the typical discrepancies in payment terms between large and small businesses in B2B transactions, B2B BNPL is poised for significant growth as business e-commerce expands, with companies like Resolve, CreditKey and Tillit leading the way.

Checkout platforms are ideally positioned as distribution partners for B2B BNPL providers, as they aggregate data across merchants and can securely store buyers’ digital identities.

Facilitating International Payments

B2B commerce is inherently global, creating a demand for robust international payments infrastructure. Historically, Foreign Exchange (FX) payments have been complex, expensive, and increasingly problematic due to the shrinking correspondent banking network.

However, a new generation of API-driven international payments companies, such as Rapyd and Airwallex, simplify the implementation of global payments and offer lower fees through multicurrency accounts and load balancing. This enables B2B checkout platforms to quickly establish international trade corridors and facilitate global payments, allowing them to strategically choose where to build deeper integrations and exert greater control over transaction economics.

The Evolution of B2B E-commerce

Establishing a leading position in the B2B checkout space presents a significant challenge. Success hinges on robust integrations, a diverse skillset in financial technology, and a long-term commitment.

However, a distinct opportunity exists to create a comprehensive platform, positioning checkout as central to all business e-commerce activities.

This includes functionalities like shipment tracking – mirroring the capabilities of Shop Pay, but tailored for B2B – and future integration of technologies such as smart contracts and cryptocurrency settlements.

The Power of Network Effects

Due to the substantial network effects inherent in checkout systems, those founders who can achieve significant scale within B2B checkout stand to realize considerable value.

The current market conditions are particularly favorable for development and innovation in this area.